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    Simple Interest Formula


    The formula for simple interest is:

    I = Prt
    where:

    I = simple interest
    P = principal (amount invested)
    r = rate of interest per interest period (e.g., 10% per year)
    t = number of interest periods (e.g., 2 years)


    Example:

    A man invests $50,000 between two separate funds.   One fund pays 7% simple interest annually while the second fund pays 7.5% simple interest annually. If the man earns a total of $3,630 interest at the end of the first year, how much did he invest in each fund?

    Solution:

    For first fund: I1 = P1r1t1
    I1 = P1 (.07)(1)

    For second fund: I2 = P2r2t2
    I2 = P2 (.075)(1)


    Total Invested = $50000 = P1 + P2

    Total Interest After First Year     = $3630 = I1 + I2

    $3630 =     P1 (.07)(1) + P2 (.075)(1)

    Substituting P1 = $50000 − P2 into above equation:

    $3630 = ($50000 − P2)(.07)(1) + P2 (.075)(1)

    $3630 = $3500 − .07 P2 + .075 P2

    $3630 = $3500 + 0.005     P2

    $3630 − $3500 = 0.005 P2

    $130 = 0.005 P2

    P2 = $26,000

    P1 = $50000 − P2 = $50000 − $26000 = $24000

    ∴
    Amount of $ Invested in First Fund =     P1 = $24,000

    Amount of $ Invested in Second Fund = P2 = $26,000


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